About: Janet Portman

Attorney and Nolo Managing Editor Janet Portman specializes in residential and commercial landlord/tenant law, legal issues related to courts, landlords and tenants, and neighbor disputes. She is the author or co-author of Every Landlord's Legal Guide, Every Landlord's Guide to Finding Great Tenants, Every Tenant's Legal Guide, Renters' Rights, Negotiate the Best Lease for Your Business, Leases & Rental Agreements, The California Landlord's Law Book: Rights and Responsibilities, and California Tenants' Rights. A nationally syndicated columnist with Inman News, Portman's column, "Rent It Right," appears regularly in the Boston Globe, Los Angeles Times, and other prominent newspapers and websites. Portman received undergraduate and graduate degrees from Stanford University and a law degree from Santa Clara University. Before joining Nolo in 1994, she practiced law as a public defender.

Recent Posts by Janet Portman

Landlord for Medical Marijuana Dispensary Done in by Its Lease

A case from the Alameda County Superior court in California gives us a fascinating lesson on a very basic issue: Rely on a “standard lease” at your peril. I bet the plaintiffs in that case, landlords who leased commercial property to a medical marijuana dispensary, are ruing the day they used a canned lease. They lost their case.

Here’s the background. Possession, use, and sale of marijuana is a federal offense; but in California, the Compassionate Use Act gives patients and their suppliers immunity from state prosecution if they adhere to the provisions of the Act. In the California case, the landlord signed a lease with the Harborside collective many years before, allowing it to operate a dispensary. In recent years, the United States Attorneys in California began targeting cooperatives, on the grounds that they were in fact selling marijuana to just about anyone (no one can seriously dispute the ease of obtaining a medical marijuana card). The prosecutors cleverly used the cooperatives’ landlords as their hammer: The feds sent letters to the property owners, threatening civil forfeiture of their property if they continued to allow it to be used to further a federal crime. Many landlords sent eviction notices to their tenants, as did the Harborside landlord, but Harborside refused to move and the landlord was forced to file an eviction lawsuit.

The landlord lost—the case was dismissed. The eviction was based on a section of California law that provides for terminating a lease when the tenant has used the property for an “unlawful purpose.” (California Code of Civil Procedure §1161(4).) The court concluded that “unlawful purpose” must be understood solely with respect to state law, not federal law. Because the collective had complied with the provisions of the Compassionate Use Act, its activity was not “unlawful” under state law and the eviction could not be upheld under that section of the law.

The Harborside decision emphasized that the landlord was not basing its eviction on a breach of a private right of the landlord under the lease—namely, a clause prohibiting the tenant from disobeying all applicable laws. Of course, the landlord could hardly advance such a claim, because its own lease detailed the tenant’s anticipated use of the premises (as a dispensary).

Good residential leases specify grounds for termination, and explain that tenants must obey all applicable laws. Failure to obey all applicable laws is a ground for termination that is separate than using the property “for an illegal purpose.” The Harborside court wisely didn’t venture an opinion as to whether the case would have turned out differently had the basis for the suit been “failure to obey all applicable laws,” beyond pointing out the possibly fatal hurdle for the landlord of trying to argue this theory when the landlord knew full well at the outset what the tenant was about to do.

I’m sure you’re wondering—even if the landlord had no advance knowledge of his tenant’s use of the property, is there really any difference between “using the property for an illegal purpose” and “failing to obey all applicable laws?” Isn’t the issue the same—whose laws? We won’t know until a court decides this question.

But in the meantime—isn’t there a better way for a landlord to protect itself? Yes, and this gets us back to the drawbacks of that canned lease. The parties could have simply omitted the use clause, or simply described a “retail use” instead of giving specifics. That would have avoided the problem of having the landlord seek to evict based on behavior that he specifically approved of in the lease. The landlord could have insisted on the right to evict based on a violation of any law, federal included, and that would have been that. Not the best position to be in, as far as the tenants are concerned, but tenants in weak bargaining positions often agree to harsh terms and hold their breath. Conversely, landlords desperate to rent out their space might cut corners by using a canned lease form and renting to tenants whose activities are counter to federal law. Perhaps that’s what happened here.

When You Pay “Last Month’s Rent,” Have You Paid It All?

When tenants move in, landlords often collect a security deposit of one month’s rent, plus last month’s rent. Imagine the tenant who, three years and two rent hikes later, has given notice and has no intention of writing a check for last month’s rent. The landlord will insist that the tenant pay the difference between the current monthly rent and the amount the tenant  paid when he moved in. Who’s right?

Here’s an example of a fight that could have been easily avoided. When the landlord raised the rent, she could have asked for the increase for the last month’s rent, too. It was up to the landlord to take that step, and since she didn’t, the tenant could argue that she waived her right to top off the last month’s rent.

Unfortunately for the tenant, it’s going to be very easy for the landlord to get that money anyway—she’ll deduct it from the  security deposit, and the tenant will have to challenge that deduction in small claims court to get it back. Expect the landlord to argue that “last month’s rent” should be understood as standing for the rent at the end of the tenancy, whatever that is. But if that’s so, it’s up to the landlord to make sure that the last month’s rent is current.

Giants’ Lincecum Leaves a Mess

Disputes over security deposits are unfortunately common, with spats over the difference between normal wear and tear (which landlords cannot charge tenants for) and damage—that’s the tenant’s responsibility. “How clean is clean” is a perennial debate. Some states, like California, specify that rentals need be returned only as clean as they were when the rental began; others require landlords and tenants to complete an inventory at the start of the tenancy, so there’s at least a chance that the rental’s initial condition will be documented.

When landlords and tenants can’t agree on proposed deductions, the matter often ends up in court, with tenants suing for the return of their deposit. Landlords who face clean-up and replacement costs that exceed the deposit may file their own lawsuits for the balance. Because the amounts involved are rarely more than a few thousand dollars, the cases go to small claims court, where litigants are limited as to how much they can sue for.

Small claims won’t do for the San Francisco landlord who rented a furnished apartment to Giants’ pitcher Tim Lincecum last year. She’s suing the ace for losses due to damaged and stolen furnishings and property, describing destroyed “bedding, doors, carpet, pillows, kitchenware, linens, furniture, household appliances, art work, decorations, patio furniture, lights, lamps, and mirrors.” The owner claims that although the lease ended on March 1, 2011, Lincecum stayed on without paying rent through mid-May, racking up unpaid rent. The total claim: a whopping $350,000.

The landlord has a lawyer; Lincecum will doubtless lawyer-up soon. If the landlord has physical evidence to substantiate her claims, especially photos, it’s hard to imagine how her tenant will evade responsibility; and proving unpaid rent is simply a matter of showing residence plus no check.

Because going to trial will be pointless, this case should and doubtless will settle, unless the landlord’s figures are so inflated that Lincecum thinks he can defeat the claims on account of greed. That, however, would still involve the spectacle of a trial, with his private life and manners up for public scrutiny. I doubt he’d relish that.

What’s the lesson for the rest of us landlords & tenants? First, as soon as the lease expires but the tenant stays on, landlords should begin eviction proceedings. Even in tenant-friendly San Francisco, these cases move quickly when the tenant alleges no defense (such as, in a nonpayment eviction, a justifiable withholding of rent when landlords fail to maintain the property). A quick trip through the courts would probably have happened here—there’s no suggestion that Lincecum had a right to stay past the lease ending date.

The take-away for tenants is easier: To avoid being charged for pre-existing damage, be sure to inventory the condition of the rental at the outset (do a walk-through with your landlord, and have both of you sign-off on what you find). And obviously, if you damage something, pay for it.

No Harm, No Foul: Challenge to San Francisco’s Rent Control Ordinance Gets Tossed

In November of 2008, San Francisco voters passed Proposition M, which amended the City’s rent control ordinance by, among other things, making it illegal for landlords to try to get tenants to move out by offering them money, accompanied by threats or intimidation. A landlord’s association, joined by one landlord, sued the city in federal court, seeking to stop enforcement of the law by arguing in part that the measure restricted their free speech rights and failed to adequately describe the conduct that would be illegal. The trial court ruled in favor of the City; the association and landlord appealed to the Ninth Circuit Court of Appeals. The result: Victory for the City. The court dismissed the suit and even refused to give the association a second chance to get their complaint right. (Carrico et al v. City and County of San Francisco, 2011 DJDAR 13612.)

What’s the Problem?

Like many other rent control ordinances, the San Francisco law prohibits tenancy terminations unless they are based on one of the law’s enumerated “just causes,” or allowable reasons. These reasons include failure to pay rent, excessive damage, the owner’s need to move in, and so on. Just cause eviction protections are necessary in order to prevent landlords from terminating a tenancy in order to create a vacancy—and bumping the rent to market rates for the next tenant. Without just cause rules, the purpose of rent control could be easily avoided by landlord-initiated, constant tenant turnover.

Predictably, landlords saddled with long-term tenants or problematic tenants have looked for ways to oust these residents when none of the just cause reasons apply. Some landlords approach the problem in a business-like manner, offering buyouts that often amount to many thousands of dollars. Others use additional tactics, by threatening service cutbacks and lawsuits, or simply making life miserable, if the tenant won’t take the deal. Proposition M was intended to make such bad faith conduct a violation of the city’s ordinance.

The Landlords’ Complaint

The landlords’ association and the single landlord attacked Prop M on several fronts, most notably by arguing that it attempted to regulate their freedom of speech, and was unconstitutionally vague. The freedom of speech argument was tough—the ordinance regulated commercial speech, which enjoys less protection than speech that’s not connected with business. To pass muster, the City needed only show that it has a substantial interest in regulating the behavior at hand, and that the ordinance “materially advances” that interest in the narrowest manner possible. In short, the issue has to be really important, and scalpels, not sledge-hammers, are what’s needed. The trial judge sided with the City.

The second question of vagueness was also a loser for the landlords. The judge ruled that “bad faith” is a concept that’s generally understood and applied (many laws proscribe bad faith conduct, and they’re not overturned for that reason). Similarly, “threats,” “intimidation,” and “offers of payment” are understandable to a person of ordinary intelligence. The case was dismissed.

Adding Insult to Injury: This Case Should Never Have Been Allowed to Proceed

Appellate courts usually review the lower court’s decision, apply the law, and decide whether it was correct. They usually don’t bring up new arguments. But there’s one area of law that’s always fair game for discussion: Did the plaintiffs—the people bringing the lawsuit, in this case, the association and the single landlord—have the right to bring the lawsuit in the first place? This issue is known as “standing,” and it simply means that only those who have suffered actual or imminent harm as a result of the law can bring a lawsuit challenging it. Merely being subject to a law, and even feeling “chilled” by it, are not enough to confer standing.

Importantly, you don’t have to violate the law in order to have “suffered injury.” But if you haven’t violated the law yet, you do have to convince the judge that you’re about to, and that you’ll be harmed as a result. Here is where the landlords’ case fell apart—to show that they were about to be harmed by Prop M would have required the landlords to state that they intended to engage in rather unsavory behavior, and just needed to know “how much is too much.” They didn’t go there—but that was a fatal mistake.

The appellate court concluded that this failure to show actual or imminent harm should have doomed the case from the start. They vacated the lower court’s decision, and sent it back with instructions to dismiss it for lack of standing.

The Court Shouts

When cases fall apart, courts often give the parties a second chance to get it right. Complaints can be amended; cases can be dismissed “without prejudice,” which makes it possible to try again. Not here: The court’s decision ends with a remarkable, all-caps instruction: “VACATE AND REMAND WITH INSTRUCTIONS TO DISMISS FOR LACK OF JURISDICTION.” Ouch.

Who Has Benefited from Challenges to  Prop M?

Other challenges to Prop M have resulted in landlord victories. The proposition attempted to prohibit landlords from making repeated buy-out offers after the tenant has notified the landlord in writing that the tenant is no longer interested. A California state appellate court earlier invalidated that portion. Another section would have given San Francisco’s rent board the power to reduce rental payments to landlords who harass their tenants or coerce them to leave—that too was tossed, another win for landlords. (Larson v. City and County of San Francisco, 192 Cal.App.4th 1263 (2011).)

Standing Gets Its Day in Court

The question of standing—having the right to complain about a law—is also at the heart of the current legal tangle over Proposition 8, California’s anti-gay marriage law. In the same week that the rent control ordinance was issued, the California Supreme Court heard arguments on whether the backers of the proposition had standing to defend it in court (the state would normally defend a successful initiative, but both the governor and the attorney general refused to do so). Stay tuned for the results on that one.

The New York Times’ Ethicist Should Start with the Law

Skimming...OK for the beach, not for landlords

In the Sunday, June 19, 2011 edition of the New York Times Magazine, “The Ethicist” responded to a California reader’s question about his landlord’s behavior. The reader, a poor student, had rented a room in a house, “with plans to stay for a full year,” but the owner soon told him that he would stop paying the mortgage. A few months later, the house was sold and the new owner gave the student 30 days to move out. The student was irked at the thought that he’d been paying rent while the owner had not been paying his mortgage, and asked if, in this situation, it would have been ethical to withhold his rent.
Citing the student’s statement that “no formal lease was signed,” the Ethicist concluded that the student had “no guarantee of a full year’s stay.” She then addressed what she viewed as the ethical question, concluding that because the renter and owner had no specific understanding that the rent would be due only if the mortgage had been paid, the student “wouldn’t have had much of a case for freeloading. [The owner’s] dereliction could not have justified yours.” Both conclusions are legally wrong, and there’s really no need to even get to the ethics of the matter.

 

“No formal lease was signed”

Both the Ethicist and the student seemed to be assuming that to be enforceable, a year’s lese has to be “formal” and “signed.” This is not true. The term “formal” has no legal meaning. An oral lease is legal and enforceable for up to one year. If the owner knew of the student’s plans and agreed to them, or remained silent after hearing of the student’s assumption that the deal was for a year, they had a lease, period. True, it may be harder to prove that the parties intended the rental term to run for a year, but difficulty in proving what was agreed to is not the same as saying that the oral understanding, once the judge decides what was agreed to, cannot be enforced.

What good would it have done for the student to be able to prove he had a lease? Read on, the answer is below.

“He doesn’t pay the mortgage, but I pay the rent!?”

Next, the Ethicist concludes that the owner’s failure to pay the mortgage would not excuse the tenant’s obligation to pay rent. This is also not exactly true—if the landlord was “rent skimming,” the student may have been able to recoup that rent after the fact.

Rent skimming means using rent proceeds from residential property during the first year (or more) of owning the property without first applying that revenue to payments due on a mortgage or deed of trust. As you might imagine, the purpose is to protect the interest of the bank and the seller. States vary in the length of time that rent skimming prohibitions apply (in California, surprisingly, it’s only one year following purchase of the property). (Calif. Civil Code § 890 and following.)

When a tenant is injured by a purchasing landlord’s rent skimming, states typically provide for very specific remedies. California tenants who must leave their rentals prematurely due to a foreclosure sale resulting from rent skimming can sue for their actual damages, including their lost security deposit and moving expenses. If the landlord’s behavior was particularly outrageous, judges can award exemplary, or punitive damages, meant to punish such behavior. And they must award punitive damages if the landlord was already two or more months behind in his payments at the time the tenant rented the premises. In addition, multiple acts of rent skimming are criminal offenses.

There are some defenses to rent skimming. For example, depending on state law, a landlord can escape liability if he used the rental revenue to pay health care providers for necessary and unforeseen treatment of himself or his dependents, or if he used it to pay contractors to make the rental premises fit and habitable. California requires that these payments be made within 30 days of receiving the rent, and that the landlord had no other source of funds to make his payments.

About that Lease

Now then, assuming the tenant could have proved that he had a lease, how would that have helped him? It might have come in handy if he had pursued his rent skimming options. As a lease-holding tenant, the student could have argued that he had no alternative but to continue to honor his lease, although he suspected rent skimming. Even if he had been able to prove that the landlord skimmed, he could not have ended his lease on that basis–skimming does not constitute a breach by the landlord, enabling the tenant to walk away.

On the other hand, as a month-to-month tenant, which the Ethicist thought he was, the tenant could have given 30 days’ notice and ended the tenancy. Although staying on doesn’t destroy his right to seek rent skimming damages, it casts a bit of a shadow on his plea. Might he have stayed on in order to eventually sue the landlord? Probably not likely, but it’s always better, when claiming that someone did you wrong, to be able to show that you had no choice but to endure the situation.

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